Amazon’s 2015 Q1: the investors like it!

Amazon’s 2015 Q1: the investors like it!

I’m used to Amazon announcing their financials, making massive sales, losing money overall, and the investors being mad.

Sales?

Worldwide revenues grew fifteen percent…that’s a massive amount for a company this big and this dominant. Paid unit growth grew faster (20%), which means that their growth of revenue grew more slowly than their growth of units. That doesn’t necessarily mean they were discounting more, it could mean that they were selling more units of the inexpensive stuff.

Massive sales, though? Check.

Profit?

Well, they muddied the waters a bit by breaking out their Web Services (which did really well), but contrary to when people tell you that Amazon is just trying to make a profit off its customers when they do things (which, by the way, is what they should be doing, right?), they aren’t.🙂

In fact, the words “Kindle” and “Fire” don’t appear at all in the transcript…but “Prime” does 46 times.

That is a shift…a considerable shift from past financial calls.

“Media” appears seven times…”books” appears once, but it doesn’t mean the kind Amazon sells, and it was a caller, not Amazon that used it.

“Video”, interestingly, appears thirteen times.

My guess is that that is part of what investors liked: Amazon was not positioning itself in this call as a retailer, as an organization that sells things.

It provides services, both to business (like AWS…Amazon Web Services) and consumers (Prime).

The Echo is about that, too…it’s not just that it is a device, it’s that it may become how some people connect to the internet (particularly when spending money at home).

I’m not worried about that focus. As consumers, we get some advantage if Amazon doesn’t really need to make money on the e-books and other items it sells. That means they can have lower prices (although the Big 5 publishers have some control over that for many books, Amazon can increasingly control it for books they publish or which are independently published but use Amazon’s platform).

I’ve said it before: Amazon’s most valuable product is happy customers (outside of its business to business work, and even then, it matters).

They need to keep us happy as consumers, so we’ll trust Amazon…or at least, want to purchase things through them (not necessarily from them).

That’s good for us.🙂

What do you think? Has Amazon actually started shifting what it does, or is it just positioning itself differently? Do you have any concerns that they’ll decrease their focus on books? Feel free to tell me and my readers what you think by commenting on this post.

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This post by Bufo Calvin originally appeared in the I Love My Kindle blog. To support this or other blogs/organizations, buy Amazon Gift Cards from a link on the site, then use those to buy your items. There will be no cost to you, and a benefit to them.

6 Responses to “Amazon’s 2015 Q1: the investors like it!”

Amazon stock is good for making me realize that I don’t know as much as I sometimes think I do when it comes to the market. Amazon makes no real sense if you look at their financials. However, they were up over 14% Friday and 50% in the last 52 weeks. I thought it was overpriced a year ago so that shows nobody should take investing advice from me.

Look at their numbers. Their P/E (price to earnings) ration is an unbelievable 178. I like companies under 20 myself. The price/book is 16.88 which means the actual book value per share is $23. However, if a company has a huge market share, which Amazon does, you can overlook price/book to a degree. There are so many good companies out there where the stock is on sale that I would not touch this stock. But, then again, what do I know? Not much evidently. I’ve been saying for at least two years that Amazon stock was going to go into free fall in the future. But again, I wouldn’t listen to me if I was anyone out there. I’ve been wrong, wrong, wrong, so far.

The above numbers are as of Dec 31st and do not reflect the most recent quarter. It will update Monday if anyone wants to take a look then by clicking below.

Sounds like you know a lot more about stocks than I do…I never claim expertise there. That’s why I write about the perception and impact of Amazon financials, rather than trying to analyze the actual numbers. Well, every once in a while, something stands out to me as a former retailer (the units versus revenue kind of thing), but that’s about it.

Reporting of AWS separately is required by regulation when its size relative to other segments gets to a certain point. Amazon had told investors last quarter that they would start breaking out AWS this quarter.

There was much anticipation for this on the street, and an expectation that AWS (still in a high growth mode) would not be profitable, and that might make the retail results look a bit better.

In fact AWS is growing faster than any other part of Amazon, AND it is showing a profit — in fact margins were quite unexpectedly good — meaning that in its competition with Microsoft, IBM, and Google in the cloud, it still has quite a bit of pricing leverage.

The AWS breakout also showed just how far ahead of its competitors Amazon is (Microsoft is a distant second). Not only did they report AWS for 1Q 2015, but also for all the quarters of 2014 for comparison (I wan’t expecting that).

Bezos commented that for 2014 AWS was a $5 billion business. Analysts pointed out that based on 1Q2015 revenues and flat growth for the rest of 2015, AWS would be a 6.5 billion business, but given the rapid growth by the end of 2015 AWS will be much larger than that (if one assumes 40% growth (less than the quarter to quarter growth through all of 2014) for the remaining 3 quarters of 2015, then AWS will end up being over a $10 billion business for 2015).

Yet on the larger front they still managed to report a net loss of $57 million. Much of this can be attributed to less than stellar results in the international segment, and much of that can be ascribed to the incredibly strong dollar. During the call they did briefly report what the results would have been without the adverse foreign exchange effects. They did mention that they are doing very well in India, and were expanding their investments there. There were a lot of questions on the call about China — but Amazon was not to be drawn on its plans there.

In addition to foreign exchange, I did notice that stock-based compensation was up quite a bit. As usual I thought there were several areas where they could have easily adjusted things to show a small profit. It occurred to me that even if the dollar had been weaker, or something else would enable them to report a profit that Amazon would nevertheless found a way to report a small loss — perhaps by adding a few more Prime Now cities, or accelerating the investment in the Echo (:grin)

On the call they mentioned that at the end of 2014 they had 109 distribution centers. I can remember when I started listening to these calls — not so long ago — when that number was in the high 30’s!

The stock price is amazing: the last time I had checked this after last quarter’s call, it was in the low 300’s — yesterday it was up around 450! I guess Bezos’ net worth is recovering nicely (:grin).

Thanks for the info on the Echo — I have the highest hopes for that product.

This is off subject Bufo but just wanted you to know what I did with a Kindle Fire I have not touched since Christmas. Last week I broke it out and turned it into a digital cookbook. I am not the first as you know. Many others have done exactly this. I am just wondering why I did not earlier. I love it. From the only friends we exchange gifts with I got Cook n’ for Christmas, which is software for storing recipes digitally. It’s $80 (he got it on sale though), but works great. If I change or add a recipe on the computer, my phone, or my Fire Digital Cookbook hehehehe, it automatically updates across all devices. For my cookbook I keep wifi off to save battery so I’d have to change that for it to update. I also changed the screen timeout to 30 minutes. With Cook n’ you can capture recipes by simply copy and pasting the address bar into the software and it works amazingly well. Anyway, this is great idea for anyone with an old Fire they don’t use. Just keep it in a kitchen drawer for easy access.

I do the cooking in our home and my wife works. When I first lost my leg in 2003 my wife explained to the kids “I am going to work and your Dad is going to stay home with you from now on and take care of the house including the cooking.” My 9 year old said “Yeah, pizza every night.” I replied “No, I’m actually going to use the oven.” He replied “Yeah, frozen pizza every night.” Actually, that’s a line from a sitcom but it’s so funny I had to pretend for a second.